Greenback holds steady after strong US data dents rate-cut hopes

THE US dollar held steady on Monday (Feb 19) after ticking higher for a fifth straight week on the back of strong inflation data, while the yen traded near the psychologically important 150 level.

US markets are closed for the Presidents’ Day holiday.

The US dollar index, which tracks the currency against six peers, was last little changed at 104.23, after rising 0.18 per cent the previous week. It rose to its highest since mid-November last Tuesday to 104.97 after figures showed US inflation came in stronger than expected in January, causing investors to dial down the number of interest rate cuts they expect from the Federal Reserve this year. But it slipped on Thursday after data showed retail sales fell last month.

“In theory last week should have been a good week for the US dollar, but the US dollar didn’t really hold on to its gains,” Chris Turner, global head of markets at ING, said. “Are we getting near to the point where the pricing in the Fed cycle is about right?”

The euro was unchanged at US$1.0777, after falling to a three-month low of US$1.0695 last week. Sterling was up 0.1 per cent at US$1.2612.

Survey-based purchasing managers’ index data, released on Thursday, will give a sense of the health of the eurozone and UK economies in February.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The minutes from the Fed’s last meeting, due on Wednesday, are likely to be the main release for investors this week.

Investors expect around 90 basis points of Fed rate cuts this year, according to money market pricing, down sharply from around 145 basis points at the start of February.

The US dollar slipped 0.16 per cent against the yen on Monday, taking it to 149.97 yen. It remains around 6 per cent higher against the yen this year as Japan has kept its ultra-loose monetary policy in place. That has created a wide gap between the two countries’ bond yields which has boosted the attractiveness of the US dollar.

The rally has prompted speculation among investors that the Japanese authorities could intervene to boost their currency. Finance Minister Shunichi Suzuki last week warned that “rapid moves are undesirable for the economy”.

Weekly data from the US markets regulator showed speculators again increased their net short position against the yen, taking it to a more than two-month high worth US$9.2 billion.

China’s onshore yuan barely budged as investors returned from the week-long Chinese New Year break, despite tourism revenues surging during the holiday. It last changed hands for around 7.1983 per US dollar. REUTERS